<PAGE>
 
                                                                    EXHIBIT 10.7

                              EMPLOYMENT CONTRACT
                              -------------------


          THIS EMPLOYMENT CONTRACT (the "Contract"), dated as of August 1, 1995,
is made between COMMUNITY PSYCHIATRIC CENTERS, a Nevada Corporation
("Employer"), and WENDY SIMPSON, an individual ("Employee").

                                R E C I T A L S
                                ---------------

     A.   Employer employs Employee pursuant to an oral agreement.

     B.   Employer desires to revise the terms of and continue Employee's
employment, and Employee desires to continue in Employer's employment.

     NOW THEREFORE, Employee and Employer agree as follows:

     1.   Definitions.  As used in this Contract, the following terms have the
          -----------                                                         
following meanings:

          1.1  Beneficiary.  "Beneficiary" means any Person or Persons
               -----------                                            
designated from time to time by Employee pursuant to paragraph 6.4.1.

          1.2  Board.  "Board" means the Board of Directors of Employer.
               -----                                                    

          1.3  Change of Control.  "Change of Control" means a change of control
               -----------------                                                
that would be required to be reported pursuant to Item 6(e) of Schedule 14A of
Rule 14 under the Exchange Act; and, without limitation of the foregoing clause,
such a change of control shall be deemed to have occurred if (i) any Person is
or becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of Employer representing 20% or more
of the combined voting power of Employer's then outstanding securities, or (ii)
during any twenty-four-month period during the Employment Term, individuals who
at the beginning of such period constitute the Board cease for any reason to
constitute at least a majority thereof, unless the election of each director who
was not a director at the beginning of such period has been approved in advance
by directors representing at least four-fifths of the directors then in office
who were directors at the beginning of such twenty-four-month period.  However,
a Change of Control does not include a distribution to Employer's shareholders
of stock of any subsidiary or a purchase of securities or assets of Employer by
a group controlled by directors or executive officers of Employer.
<PAGE>
 
          1.4  Code.  "Code" means the Internal Revenue Code of 1986, as
               ----                                                     
amended.

          1.5  Commission.  "Commission" means the Securities and Exchange
               ----------                                                 
Commission.

          1.6  Compete.  "Compete" means either directly or indirectly to own,
               -------                                                        
initiate, manage, operate, join, control, advise, consult with or participate in
the ownership, operation, management or control (other than as a shareholder
owning less than five percent (5%) of the capital stock of any entity, the
shares of which are traded on a national exchange) of any business similar to
the Existing Businesses or the Proposed Businesses within the United States, the
United Kingdom or any foreign country in which Existing or Proposed Businesses
are located, or to lease or sell real or personal property to any such business.

          1.7  Confidential Information.  "Confidential Information" means
               ------------------------                                    

               1.7.1  Locations.  Data regarding location of proposed and
                      ---------                                          
existing hospitals, facilities and buildings;

               1.7.2  Markets.  Market surveys, studies and analyses;
                      -------                                        

               1.7.3  Personnel.  Information concerning the identity, location
                      ---------                                                
and qualifications of professionals and employees, existing and prospective;

               1.7.4  Referrals.  Information concerning referral sources;
                      ---------                                           

               1.7.5  Reimbursement.  Information concerning reimbursement
                      -------------                                       
sources, insurers and other third-party payors and related procedures;

               1.7.6  Legal and Regulatory.  Tabulated and organized information
                      --------------------                                      
concerning legislative, administrative, regulatory and zoning requirements,
bodies, procedures and officials;

               1.7.7  Medical and Personnel Records.  Medical and personnel
                      -----------------------------                        
records;

               1.7.8  Data.  Statistical, financial, cost and accounting data;
                      ----                                                    

               1.7.9  Patient and Customer Lists.  Existing and prospective
                      --------------------------                           
patient and customer lists; and

                                       2
<PAGE>
 
               1.7.10  Manuals.  Administrative, operations and procedure
                       -------                                           
manuals and directives.

               1.7.11  Ideas.  Business ideas pertaining to any Existing or
                       -----                                               
Proposed Businesses.  Business ideas include, but are not limited to, ideas,
concepts or proposals that are conceived, developed or implemented by or
communicated to Employee.

          1.8  Employment Term.  "Employment Term" means the period commencing
               ---------------                                                
August 1, 1995 and continuing for a period of three (3) years and four (4)
months ending November 30, 1998, unless earlier terminated pursuant to paragraph
5.

          1.9  Exchange Act.  "Exchange Act" means the Securities Exchange Act
               ------------                                                   
of 1934, as amended.

          1.10 Existing Businesses.  "Existing Businesses" means the following
               -------------------                                            
businesses in which Employer is currently engaged in the United States and the
United Kingdom:

               1.10.1  Dialysis.  Ownership, operation and management of
                       --------                                         
facilities and businesses which provide hemodialysis services and treatments to
patients with chronic or acute kidney diseases or conditions;

               1.10.2  Psychiatric Hospitals.  Ownership and operation of acute
                       ---------------------                                   
psychiatric hospitals, medical office buildings and pharmacies and related
facilities;

               1.10.3  Substance Abuse.  Ownership and operation of facilities
                       ---------------                                        
which provide chemical, drug and alcohol dependency treatment and services;

               1.10.4  Transitional Care.  Ownership and operation of
                       -----------------                             
transitional care facilities which provide medically complex treatment to
patients with long-term acute and subacute illnesses;

               1.10.5  Patient Care.  Provision of inpatient, outpatient,
                       ------------                                      
residential, partial hospitalization and home psychiatric mental health and
substance abuse services and treatment.

          1.11  Fiscal Year.  "Fiscal Year" means Employer's annual accounting
                -----------                                                   
period for financial accounting and reporting purposes, which on the date hereof
is the period from each December 1 to and including the next following November
30.

          1.12  Permanent Disability.  "Permanent Disability" means any mental
                --------------------                                          
or physical illness, disease or condition which in the opinion of an
independent, duly licensed physician will or does result in Employee's inability
to perform her duties during normal working hours for six months.

                                       3
<PAGE>
 
          1.13  Person.  "Person" means any individual, corporation,
                ------                                               
partnership, business trust, joint venture, association, joint stock company,
trust, unincorporated organization or government or agency or political
subdivision thereof.

          1.14  Proposed Businesses.  "Proposed Businesses" means businesses
                -------------------                                         
other than and whether or not related to Existing Businesses in which Employer
may from time to time be or plan to be engaged.

          1.15  Salary.  "Salary" means Two Hundred Seventy-Five Thousand
                ------                                                   
Dollars ($275,000) per Fiscal Year, as adjusted from time to time pursuant to
paragraph 3.1.1; and does not include any bonuses or other employment benefits
or remuneration paid or payable by Employer to Employee.

     2.   Employment and Duties.  During the Employment Term, Employer shall
          ---------------------                                             
employ Employee and Employee shall serve Employer as Executive Vice President
and Chief Financial Officer, or in such other capacity as may be designated from
time to time by Employer's Chief Executive Officer or Board.  During the
Employment Term, Employee shall devote her full productive time, energies and
abilities to the business of Employer under the authority of the Chief Executive
Officer and the Board.

     3.   Compensation and Benefits.
          ------------------------- 

          3.1  Salary.  During the Employment Term, Employer shall pay the
               ------                                                     
Salary to Employee in equal monthly or more frequent installments in accordance
with Employer's general practice and subject to legally required withholdings.

               3.1.1  Salary Review.  The Salary for any Fiscal Year commencing
                      -------------                                            
after November 30, 1995 shall be subject to annual review by the Board, but in
no event shall the Salary be reduced below the greater of the amount specified
in paragraph 1.16 or the Salary most recently determined by the Board pursuant
to this paragraph 3.1.1.  Employee understands that the requirement of annual
review by the Board shall not be construed in any manner as an express or
implied agreement by Employer to raise the Salary.

          3.2  Expense Reimbursement.  During the Employment Term, Employer
               ---------------------                                       
shall promptly reimburse Employee, upon submission to Employer by Employee of
adequate documentation, for all reasonable out-of-pocket expenses respecting
entertainment, travel, meals, hotel accommodations and other like-kind expenses,
in each case incurred by Employee in the interest of Employer's business and
consistent with Employer's policies.

          3.3  Group Insurance.  During the Employment Term, Employer shall
               ---------------                                             
provide group life insurance, group travel and

                                       4
<PAGE>
 
accident insurance and group medical, dental and hospital insurance to Employee
in the amount and on the terms such insurance is made available to other senior
executives of Employer with the same status or in the same category.

          3.4  Profit Sharing Plan.  During the Employment Term, Employee shall
               -------------------                                             
be a participant in Employer's Profit Sharing Plan if she otherwise meets the
participation requirements.

          3.5  Other Benefits.  During the Employment Term by mutual agreement
               --------------                                                 
with Employer, Employee may participate in employment benefits made available to
other senior executives of Employer with the same status or in the same
category; provided, however, that this Contract itself shall neither prevent nor
compel such participation.

     4.   Protection of Business Information; Noncompetition; Nonsolicitation.
          ------------------------------------------------------------------- 

          4.1  Nondisclosure.
               ------------- 

               4.1.1  Confidential Information.  In the operation and expansion
                      ------------------------                                 
of the Existing Businesses and in the planning and development of the Proposed
Businesses, Employer has generated and will generate Confidential Information
which is and will be proprietary and confidential and the disclosure of which
would be extremely detrimental to Employer and of great assistance to its
competitors.

               4.1.2  Information Held as a Fiduciary.  All of the Confidential
                      -------------------------------                          
Information which is acquired by, communicated to or in any way comes into the
possession or control of Employee shall be held by Employee in a fiduciary
capacity for the exclusive benefit of Employer.

               4.1.3  Nondisclosure Covenant.  Employee shall not disclose any
                      ----------------------                                  
Confidential Information to any person, without the consent of Employer.

               4.1.4  Exemptions.  The restrictions set forth in this paragraph
                      ----------                                               
4.1 shall not apply to any part of the Confidential Information which: (i) is or
becomes generally available to the public or publicly known other than as a
result of disclosure in breach of any obligation of confidentiality; (ii)
becomes available to Employee on a nonconfidential basis from a source other
than Employer or its agents or affiliates; (iii) is disclosed pursuant to the
requirement of a governmental agency or court of competent jurisdiction or as
otherwise required under applicable law; or (iv) was otherwise known or
available to Employee without any obligation of confidentiality.

                                       5
<PAGE>
 
               4.1.5  Following Employment.  Upon termination of this Agreement,
                      --------------------                                      
Employee shall promptly relinquish and return to Employer all Confidential
Information and all files, correspondence, memoranda, diaries and other records,
minutes, notes, manuals, papers and other documents and data, however prepared
or memorialized, and all copies thereof, belonging to or relating to the
business of Employer, that are in Employee's custody or control whether or not
they contain Confidential Information.

          4.2  Noncompetition Covenant.  During the Employment Term and for a
               -----------------------                                       
period of one (1) year thereafter, Employee shall not compete or plan or prepare
to compete with Employer.

          4.3  Nonsolicitation Covenant.  Employee shall not solicit other
               ------------------------                                   
employees, independent contractors, customers, referral sources or reimbursement
sources of Employer for use or employment other than in the Existing or Proposed
Businesses.

          4.4  Scope and Duration; Severability.  Employer and Employee
               --------------------------------                        
understand and agree that the scope and duration of the covenants contained in
this paragraph 4 are reasonable both in time and area and are fairly necessary
to protect the business of Employer.  Nevertheless, it is further agreed that
such covenants shall be regarded as divisible and shall be operative as to time
and area to the extent that they may be made so operative and, if any part of
them is declared invalid or unenforceable, the validity and enforceability of
the remainder shall not be affected.

          4.5  Injunction.  Employee understands and agrees that, due to the
               ----------                                                   
highly competitive nature of the health care industry, the breach of any of the
covenants set out in paragraphs 4.1.3, 4.2 and 4.3 will cause irreparable injury
to Employer for which it will have no adequate monetary or other remedy at law.
Therefore, Employer shall be entitled, in addition to such other remedies as it
may have hereunder, to a temporary restraining order and to preliminary and
permanent injunctive relief for any breach or threatened breach of the covenants
without proof of actual damages that have been or may be caused hereby.  In
addition, Employer shall have available all remedies provided under state and
federal statutes, rules and regulations as well as any and all other remedies as
may otherwise be contractually or equitably available.

          4.6  Assignment.  Except as provided in paragraphs 5.2.4 and 5.2.5,
               ----------                                                    
Employee agrees that the covenants contained in paragraph 4 shall inure to the
benefit of any successor or assign of Employer with the same force and effect as
if such covenants had been made by Employee with such successor or assign.

     5.   Termination.  This Contract shall be terminated before the end of the
          -----------                                                          
Employment Term for the reasons set out in paragraph 5.1, in each case with the
consequences set out in paragraph 5.2.

                                       6
<PAGE>
 
          5.1  Grounds for Termination.
               ----------------------- 

               5.1.1  By Employer.  This Contract may be terminated by Employer
                      -----------                                              
at any time on thirty (30) days' written notice to Employee, for any of the
following reasons:

                      (a) Breach. Breach of any material provision of this
                          ------
Contract by Employee or her breach or gross neglect of or failure to perform her
duties as employee of Employer;

                      (b)  Cause.  For cause;
                           -----             

                      (c) Permanent Disability.  Employee's Permanent
                          --------------------                       
Disability.

               5.1.2  Termination by Employee.  This Contract may be terminated
                      -----------------------                                  
by Employee at any time upon thirty (30) days' written notice for any of the
following reasons:

                      (a) Breach. Breach of any material provision of this
                          ------
Contract by Employer which is not remedied within thirty days after written
notice specifying such breach in reasonable detail;

                      (b) Change of Control. A Change of Control; provided,
                          -----------------
however, that termination pursuant to this 5.1.2(b) shall be effective if and
only if Employee gives Employer written notice of such termination within one
year after such Change of Control;

                      (c) Permanent Disability.  Employee's Permanent
                          --------------------                       
Disability.

               5.1.3  Termination upon Death.  This Contract shall terminate
                      ----------------------                                
immediately upon the death of Employee.

          5.2  Effect of Termination.  If this Contract is terminated pursuant
               ---------------------                                          
to paragraph 5.1, the parties shall have the following rights and obligations:

               5.2.1  By Employer for Breach or Cause.  If this Contract is
                      -------------------------------                      
terminated by Employer pursuant to paragraphs 5.1.1(a) or (b), Employee shall
not have the right or obligation to perform the services described in paragraph
2.1, nor shall Employee have the right to receive the Salary or any other
compensation or benefits described in paragraph 3 after the date of termination;
but Employee shall be obligated to Employer as provided in paragraph 4, and
Employer shall have all remedies available at law or in equity.

                                       7
<PAGE>
 
               5.2.2 By Employer or Employee upon Permanent Disability. If this
                     -------------------------------------------------
Contract is terminated by Employer or Employee pursuant to paragraph 5.1.1(c),
or 5.1.2(c), (i) Employee shall thereafter have the obligations described in
paragraph 4, and (ii) Employer shall (A) pay to Employee or her Beneficiary,
within sixty (60) days after such termination, the Salary for the ninety (90)
days immediately following the date of termination, (B) continue to have the
obligations described in paragraphs 3.3 and 3.5, but only to the extent those
benefits are available under the plans then in effect, and (D) sell to Employee,
at her option, at its net book value, any automobile then being provided to her
which is owned by Employer.

               5.2.3  Death.  If Employee dies, Employer shall (i) within sixty
                      -----                                                    
(60) days pay the Salary to the date of her death if she dies during the
Employment Term and (ii) pay or continue for the benefit of the Beneficiary such
other benefits as may be due pursuant to paragraphs 3.3 and 3.5.

               5.2.4  By Employee for Breach.  If this Contract is terminated by
                      ----------------------                                    
Employee pursuant to paragraph 5.1.2(a), she shall not have any further
obligation to Employer under paragraphs 2 and 4, and Employer shall (i) pay to
her, within sixty (60) days after such termination, the aggregate Salary for the
twenty-four (24) months immediately following the date of termination, and (ii)
continue to have the obligations described in paragraphs 3.3 and 3.5, but only
to the extent those benefits are available under those plans as then in effect.
Employee shall have all remedies available at law or in equity and shall have no
duty to mitigate her damages.

               5.2.5  By Employee upon Change of Control.  If there is a Change
                      ----------------------------------                       
of Control and

                 (a) Termination.  This Contract is terminated by Employee
                     -----------                                          
pursuant to paragraph 5.1.2(b),

                    (i) Payments. Employer shall, within 30 days after the
                        --------
effective date of such termination, pay to her (A) the aggregate Salary for the
twenty-four (24) months immediately following the date of termination, plus (B)
all other compensation and benefits remaining to be paid to her under this
Contract.

                    (ii) Automobile. Employee shall have the option to purchase
                         ----------
at net book value any automobile then provided to her which is owned by
Employer; and

                    (iii) Release of Employee Obligations.  Employee
                          -------------------------------           
shall not be obligated to perform any duties under paragraph 2.1, any
obligations under paragraph 4 or any other duty,

                                       8
<PAGE>
 
obligation or covenant under this Contract or as an employee of Employer.

               (b) No Termination; Vesting of Options, etc. Whether or not
                   ---------------------------------------
Employee terminates this Contract pursuant to paragraph 5.1.2(b), all stock
options and related stock appreciation rights, restricted stock, contingent
bonuses or payments and similar deferred benefits held by Employee shall vest
and become exercisable immediately upon a Change of Control, and any
restrictions on shares of stock of Employer or on stock units that were awarded
to Employee under any plan or arrangement maintained by Employer for her benefit
shall lapse upon the occurrence of such an event.

          5.3  Withholding.  Anything in this Contract to the contrary
               -----------                                            
notwithstanding,

               5.3.1  Withholding.  All payments required to be made to Employee
                      -----------                                               
or the Beneficiary under this Contract shall be subject to the withholding of
such amounts, if any, for income and other payroll taxes and deductions as
Employer may reasonably determine should be withheld pursuant to any applicable
law or regulation.

          5.4  Exercise of Options.  Notwithstanding anything in Employee's
               -------------------                                         
stock option agreements with Employer, Employee may exercise all of her vested
stock options within seven (7) days after termination for any reason of her
employment hereunder.

     6.   Miscellaneous.
          ------------- 

          6.1  Assignment by Employer.  Subject to paragraphs 5.2.4 and 5.2.5,
               ----------------------                                         
this Contract shall be binding upon and shall inure to the benefit of any
successors or assigns of Employer.  As used in this Contract, the term
"successor" includes any Person or combination of Persons acting in concert
which at any time in any form or manner acquires all or substantially all of the
assets or business or more than twenty percent (20%) of the voting stock of
Employer or any succession which results from a Change of Control.

          6.2  Nonassignability by Employee.  Neither Employee nor any
               ----------------------------                           
Beneficiary shall assign, transfer, pledge or hypothecate any rights, interests
or benefits created hereunder or hereby.  Any attempt to do so contrary to the
provisions of this Contract, and any levy of any attachment, execution or
similar process created thereby, shall be null and void and without effect.

          6.3  Spendthrift Provision.  Prior to actual receipt by Employee or
               ---------------------                                         
the Beneficiary, as the case may be, no right or benefit under this Contract
and, without limitation, no interest in any payment hereunder shall be:

                                       9
<PAGE>
 
               6.3.1 Anticipation. Anticipated, assigned or encumbered or
                     ------------
subject to any creditor's claim or subject to execution, attachment or similar
legal process, or

               6.3.2  Liability for Debts; Claims.  Applied on behalf of or
                      ---------------------------                          
subject to the debts, contracts, liabilities or torts of the Person entitled or
who might become entitled to such benefits, or subject to the claims of any
creditor of any such Person.

          6.4  Beneficiary; Recipients of Payments; Designation of Beneficiary.
               ---------------------------------------------------------------  
The Salary, the proceeds of the life insurance policy described in paragraph 3.4
and other compensation and benefits payable by Employer pursuant to this
Contract shall be made only to Employee during her lifetime or, in the event of
her death, to the Beneficiary.  If Employee has not designated a Beneficiary,
the payments shall be made to her estate.  Employer shall have no obligation to
make payments to any person not designated pursuant to paragraph 6.4.1 and shall
be discharged, defended and held harmless from any liability for payments
actually made to any Beneficiaries or to Employee's estate if no Beneficiaries
have been designated.

               6.4.1  Designation of Beneficiary.  Employee may designate and
                      --------------------------                             
from time to time change the Beneficiary only by giving a written, signed
designation to Employer's Corporate Secretary pursuant to paragraph 6.6.

               6.4.2  Elections.  Whenever this Contract provides for any option
                      ---------                                                 
or election by Employee or the Beneficiary, the option shall be exercised or the
election made solely by the person or persons receiving payments pursuant to
this Contract at that time, and shall be made in that Person's sole discretion
and without regard to the effect of the decision on subsequent recipients of
payments.  Such decision by such Person shall be final and binding on all
subsequent recipients of payments.

          6.5  Arbitration.  If any controversy, question or dispute arises out
               -----------                                                     
of or relating to the construction, application or enforcement of this Contract,
it shall be settled by arbitration as follows:

               6.5.1  Appointment of Arbitrators.  Within five days after the
                      --------------------------                             
delivery of written notice of any such dispute from one to the other, Employer
and Employee shall each appoint one person to hear and determine the dispute,
and, if the two persons so selected are unable to agree on its resolution with
ten (10) days after their appointment, they shall select a third impartial
arbitrator, and the three arbitrators so selected shall hear and determine the
dispute within sixty (60) days thereafter.

                                       10
<PAGE>
 
               6.5.2 Finality. The determination of a majority of the
                     --------
arbitrators shall be final and conclusive on Employee and Employer.

               6.5.3  Rules.  The arbitration shall be conducted in accordance
                      -----                                                   
with the rules of the American Arbitration Association, and judgment on any
award rendered by the arbitrators may be entered in any court having
jurisdiction.

               6.5.4  Discovery.  The parties shall be entitled to avail
                      ---------                                         
themselves of all discovery procedures available in civil actions in the State
of Nevada.

          6.6  Notices.  Any notice provided for by this Contract and any other
               -------                                                         
notice, demand, designation or communication which either party may wish to send
to the other (the "Notices") shall be in writing and shall be deemed to have
been properly given if served by (i) personal delivery, (ii) registered or
certified mail, return receipt requested, in a sealed envelope, postage and
other charges prepaid, or (iii) telegram, telecopy, telex, facsimile or other
similar form of transmission followed by delivery pursuant to clause (i) or
(ii), in each case  addressed to the party for which such notice is intended as
follows:

If to Employer:

     Executive Vice President--Administration
     Community Psychiatric Centers
     6600 West Charleston Blvd., Suite 118
     Las Vegas, NV  89102
     FAX:  (702) 259-3650

If to Employee:

     Wendy Simpson
     Community Psychiatric Centers
     6600 West Charleston Blvd., Suite 118
     Las Vegas, NV  89102
     FAX:  (702) 259-3650

               6.6.1  Change of Address.  Any address or name specified in this
                      -----------------                                        
paragraph 6.6 may be changed by a Notice given in accordance with this paragraph
6.6.

               6.6.2  Effective Date of Notice.  All Notices shall be given and
                      ------------------------                                 
effective as of the date of personal delivery thereof or the date of receipt set
forth on the return receipt.  The inability to deliver because of a changed
address of which no Notice was given, or rejection or other refusal to accept
any Notice shall be deemed to be the receipt of the Notice as of the date of
such inability to deliver or rejection or refusal to accept.

                                       11
<PAGE>
 
          6.7  Governing Law; Jurisdiction.  This Contract shall be construed in
               ---------------------------                                      
accordance with and governed by the laws of the State of Nevada as that State is
presently constituted.  Employer hereby consents and submits to the jurisdiction
of the state and federal courts in Nevada in any suit for the enforcement or
construction of or otherwise arising out of this Contract.

          IN WITNESS WHEREOF, this Contract has been executed and delivered by
the parties as of the date first set forth above.


                               EMPLOYEE

                               /s/ Wendy Simpson
                               ----------------------------------------- 
                               Wendy Simpson



                               COMMUNITY PSYCHIATRIC CENTERS

                               By: /s/ Richard L. Conte
                                  --------------------------------------
                                  Richard L. Conte
                                  --------------------------------------
                                                [Print Name]

                                       12